Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark one)

 

 

þ

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the quarterly period ended June 30, 2014.

 

 

 

 

 

or

 

 

 

o

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

For the transition period from                                to                               .

 

Commission file number:
001-32324 (CubeSmart)
000-54662 (CubeSmart, L.P.)

 


 

CUBESMART

CUBESMART, L.P.

(Exact Name of Registrant as Specified in its Charter)

 


 

Maryland (CubeSmart)
Delaware (CubeSmart, L.P.)

20-1024732
34-1837021

 

 

(State or Other Jurisdiction of

(I.R.S. Employer

 

Incorporation or Organization)

Identification No.)

 

 

 

 

5 Old Lancaster Road

 

 

Malvern, Pennsylvania

19355

 

(Address of Principal Executive Offices)

(Zip Code)

 

(610) 535-5000

(Registrant’s Telephone Number, Including Area Code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

CubeSmart

Yes þ No o

CubeSmart, L.P.

Yes þ No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

CubeSmart

Yes þ No o

CubeSmart, L.P.

Yes þ No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

CubeSmart:

 

 

 

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

 

 

 

 

CubeSmart, L.P.:

 

 

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer þ

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

CubeSmart

Yes o No þ

CubeSmart, L.P.

Yes o No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding at August 5, 2014

Common shares, $0.01 par value per share, of CubeSmart

 

148,591,159

 

 

 



Table of Contents

 

EXPLANATORY NOTE

 

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2014 of CubeSmart (the “Parent Company” or “CubeSmart”) and CubeSmart, L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership.  The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we”, “us”, or “our” used in this report may refer to the Company, the Parent Company, or the Operating Partnership.

 

The Parent Company is the sole general partner of the Operating Partnership and, as of June 30, 2014, owned a 98.5% interest in the Operating Partnership. The remaining 1.5% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of facilities to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.

 

Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and the Operating Partnership are identical, and their constituents are officers of both the Parent Company and of the Operating Partnership.

 

There are few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership.  As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and, directly or indirectly, holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership or equity interests in subsidiaries of the Operating Partnership.

 

The substantive difference between the Parent Company’s and the Operating Partnership’s filings is the fact that the Parent Company is a REIT with public equity, while the Operating Partnership is a partnership with no publicly traded equity. In the financial statements, this difference is primarily reflected in the equity (or capital for Operating Partnership) section of the consolidated balance sheets and in the consolidated statements of equity (or capital). Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical.

 

The Company believes that combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into a single report will:

 

·       facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;

·       remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and

·       create time and cost efficiencies through the preparation of one combined report instead of two separate reports.

 

In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real estate ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.

 

As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.

 

This report also includes separate Item 4 - Controls and Procedures sections, signature pages and Exhibit 31 and 32 certifications for each of  the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership have made the requisite certifications and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

 

2



Table of Contents

 

TABLE OF CONTENTS

 

Part I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

Controls and Procedures

46

 

 

 

Part II. OTHER INFORMATION

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

Item 6.

Exhibits

48

 

Filing Format

 

This combined Form 10-Q is being filed separately by CubeSmart and CubeSmart, L.P.

 

3



Table of Contents

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, or “this Report”, together with other statements and information publicly disseminated by the Parent Company and the Operating Partnership, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include statements concerning the Company’s plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information.  In some cases, forward-looking statements can be identified by terminology such as “believes,” “expects,” “estimates,” “may,” “will,” “should,” “anticipates,” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy.  Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.  Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements.  As a result, you should not rely on or construe any forward-looking statements in this Report, or which management may make orally or in writing from time to time, as predictions of future events or as guarantees of future performance.  We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Report or as of the dates otherwise indicated in the statements.  All of our forward-looking statements, including those in this Report, are qualified in their entirety by this statement.

 

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this Report.  Any forward-looking statements should be considered in light of the risks and uncertainties referred to in Item 1A. “Risk Factors” in the Parent Company’s and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2013 and in our other filings with the Securities and Exchange Commission (“SEC”).  These risks include, but are not limited to, the following:

 

·         national and local economic, business, real estate and other market conditions;

 

·         the competitive environment in which we operate, including our ability to maintain or raise occupancy and rental rates;

 

·         the execution of our business plan;

 

·         the availability of external sources of capital;

 

·         financing risks, including the risk of over-leverage and the corresponding risk of default on our mortgage and other debt and potential inability to refinance existing indebtedness;

 

·         increases in interest rates and operating costs;

 

·         counterparty non-performance related to the use of derivative financial instruments;

 

·         our ability to maintain our Parent Company’s qualification as a real estate investment trust (“REIT”) for federal income tax purposes;

 

·         acquisition and development risks;

 

·         increases in taxes, fees, and assessments from state and local jurisdictions;

 

·         changes in real estate and zoning laws or regulations;

 

·         risks related to natural disasters;

 

·         potential environmental and other liabilities;

 

·         other factors affecting the real estate industry generally or the self-storage industry in particular; and

 

·         other risks identified in the Parent Company’s and the Operating Partnership’s Annual Report on Form 10-K, as amended, and, from time to time, in other reports that we file with the SEC or in other documents that we publicly disseminate.

 

Given these uncertainties and the other risks identified elsewhere in this Report, we caution readers not to place undue reliance on forward-looking statements.  We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws.

 

4



Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Storage facilities

 

  $

2,776,835

 

 

  $

2,553,706

 

Less: Accumulated depreciation

 

(442,044

)

 

(398,536

)

Storage facilities, net (including VIE assets of $34,314 and $34,559, respectively)

 

2,334,791

 

 

2,155,170

 

Cash and cash equivalents

 

10,789

 

 

3,176

 

Restricted cash

 

3,587

 

 

4,025

 

Loan procurement costs, net of amortization

 

11,543

 

 

12,687

 

Investment in real estate venture, at equity

 

101,013

 

 

156,310

 

Other assets, net

 

41,400

 

 

27,256

 

Total assets

 

  $

2,503,123

 

 

  $

2,358,624

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Unsecured senior notes

 

  $

500,000

 

 

  $

500,000

 

Revolving credit facility

 

56,900

 

 

38,600

 

Unsecured term loans

 

400,000

 

 

400,000

 

Mortgage loans and notes payable

 

224,232

 

 

200,218

 

Accounts payable, accrued expenses and other liabilities

 

57,847

 

 

57,599

 

Distributions payable

 

20,960

 

 

19,955

 

Deferred revenue

 

14,632

 

 

12,394

 

Security deposits

 

392

 

 

376

 

Total liabilities

 

1,274,963

 

 

1,229,142

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

41,430

 

 

36,275

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

7.75% Series A Preferred shares $.01 par value, 3,220,000 shares authorized, 3,100,000 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively

 

31

 

 

31

 

Common shares $.01 par value, 200,000,000 shares authorized, 147,078,392 and 139,328,366 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively

 

1,471

 

 

1,393

 

Additional paid in capital

 

1,669,327

 

 

1,542,703

 

Accumulated other comprehensive loss

 

(10,650

)

 

(11,014

)

Accumulated deficit

 

(474,944

)

 

(440,837

)

Total CubeSmart shareholders’ equity

 

1,185,235

 

 

1,092,276

 

Noncontrolling interests in subsidiaries

 

1,495

 

 

931

 

Total equity

 

1,186,730

 

 

1,093,207

 

Total liabilities and equity

 

  $

2,503,123

 

 

  $

2,358,624

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

5



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

  $

81,071

 

 

  $

68,739

 

 

  $

156,785

 

 

  $

134,991

 

Other property related income

 

9,799

 

 

8,333

 

 

19,946

 

 

15,592

 

Property management fee income

 

1,467

 

 

1,217

 

 

2,873

 

 

2,362

 

Total revenues

 

92,337

 

 

78,289

 

 

179,604

 

 

152,945

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

32,080

 

 

28,469

 

 

64,370

 

 

57,629

 

Depreciation and amortization

 

30,487

 

 

28,393

 

 

58,602

 

 

57,376

 

General and administrative

 

7,059

 

 

7,515

 

 

13,628

 

 

15,128

 

Total operating expenses

 

69,626

 

 

64,377

 

 

136,600

 

 

130,133

 

OPERATING INCOME

 

22,711

 

 

13,912

 

 

43,004

 

 

22,812

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

(12,027

)

 

(10,588

)

 

(23,898

)

 

(20,860

)

Loan procurement amortization expense

 

(543

)

 

(497

)

 

(1,084

)

 

(973

)

Acquisition related costs

 

(721

)

 

(1,648

)

 

(2,400

)

 

(1,763

)

Equity in losses of real estate venture

 

(1,729

)

 

-    

 

 

(3,098

)

 

-    

 

Gain from sale of real estate

 

475

 

 

-    

 

 

475

 

 

-    

 

Other

 

(173

)

 

(187

)

 

(766

)

 

(260

)

Total other expense

 

(14,718

)

 

(12,920

)

 

(30,771

)

 

(23,856

)

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM CONTINUING OPERATIONS

 

7,993

 

 

992

 

 

12,233

 

 

(1,044

)

 

 

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

-    

 

 

1,576

 

 

336

 

 

2,956

 

Gain from disposition of discontinued operations

 

-    

 

 

-    

 

 

-    

 

 

228

 

Total discontinued operations

 

-    

 

 

1,576

 

 

336

 

 

3,184

 

NET INCOME

 

7,993

 

 

2,568

 

 

12,569

 

 

2,140

 

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

(95

)

 

(18

)

 

(144

)

 

17

 

Noncontrolling interests in subsidiaries

 

(12

)

 

-    

 

 

(9

)

 

1

 

NET INCOME ATTRIBUTABLE TO THE COMPANY

 

7,886

 

 

2,550

 

 

12,416

 

 

2,158

 

Distribution to preferred shareholders

 

(1,502

)

 

(1,502

)

 

(3,004

)

 

(3,004

)

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

  $

6,384

 

 

  $

1,048

 

 

  $

9,412

 

 

  $

(846

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share from continuing operations attributable to common shareholders

 

  $

0.04

 

 

  $

0.00

 

 

  $

0.06

 

 

  $

(0.03

)

Basic earnings per share from discontinued operations attributable to common shareholders

 

  $

0.00

 

 

  $

0.01

 

 

  $

0.01

 

 

  $

0.02

 

Basic earnings (loss) per share attributable to common shareholders

 

  $

0.04

 

 

  $

0.01

 

 

  $

0.07

 

 

  $

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share from continuing operations attributable to common shareholders

 

  $

0.04

 

 

  $

0.00

 

 

  $

0.06

 

 

  $

(0.03

)

Diluted earnings per share from discontinued operations attributable to common shareholders

 

  $

0.00

 

 

  $

0.01

 

 

  $

0.01

 

 

  $

0.02

 

Diluted earnings (loss) per share attributable to common shareholders

 

  $

0.04

 

 

  $

0.01

 

 

  $

0.07

 

 

  $

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic shares outstanding

 

144,679

 

 

133,677

 

 

142,461

 

 

133,316

 

Weighted-average diluted shares outstanding

 

146,999

 

 

133,677

 

 

144,691

 

 

133,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

  $

6,384

 

 

  $

(501

)

 

  $

9,081

 

 

  $

(3,976

)

Total discontinued operations

 

-    

 

 

1,549

 

 

331

 

 

3,130

 

Net income (loss)

 

  $

6,384

 

 

  $

1,048

 

 

  $

9,412

 

 

  $

(846

)

 

See accompanying notes to the unaudited consolidated financial statements.

 

6



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

  $

7,993

 

 

  $

2,568

 

 

  $

12,569

 

 

  $

2,140

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on interest rate swap

 

(2,247

)

 

5,595

 

 

(3,231

)

 

5,286

 

Reclassification of realized losses on interest rate swaps

 

1,601

 

 

1,554

 

 

3,177

 

 

3,085

 

Unrealized gain (loss) on foreign currency translation

 

354

 

 

25

 

 

428

 

 

(231

)

OTHER COMPREHENSIVE (LOSS) INCOME

 

(292

)

 

7,174

 

 

374

 

 

8,140

 

COMPREHENSIVE INCOME

 

7,701

 

 

9,742

 

 

12,943

 

 

10,280

 

Comprehensive income attributable to noncontrolling interests in the Operating Partnership

 

(88

)

 

(140

)

 

(147

)

 

(123

)

Comprehensive (income) loss attributable to noncontrolling interests in subsidiaries

 

(17

)

 

(7

)

 

(16

)

 

3

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY

 

  $

7,596

 

 

  $

9,595

 

 

  $

12,780

 

 

  $

10,160

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

7



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Preferred Shares

 

Additional
Paid in

 

 

Accumulated Other
Comprehensive

 

 

Accumulated

 

 

Total
Shareholders’

 

 

Noncontrolling
Interests in

 

 

Total

 

 

Noncontrolling
Interests in the
Operating

 

 

 

Number

 

Amount

 

Number

 

Amount

 

Capital

 

 

(Loss) Income

 

 

Deficit

 

 

Equity

 

 

Subsidiaries

 

 

Equity

 

 

Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

139,328

 

$

 1,393

 

3,100

 

$

 31

 

$

 1,542,703

 

 

$

 (11,014

)

 

$

 (440,837

)

 

$

 1,092,276

 

 

$

 931

 

 

$

 1,093,207

 

 

$

 36,275

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 548

 

 

548

 

 

 

 

Issuance of common shares

 

7,211

 

73

 

 

 

 

 

126,046

 

 

 

 

 

 

 

 

126,119

 

 

 

 

 

126,119

 

 

 

 

Issuance of restricted shares

 

416

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

4

 

 

 

 

Conversion from units to shares

 

14

 

 

 

 

 

 

234

 

 

 

 

 

 

 

 

234

 

 

 

 

 

234

 

 

(234

)

Exercise of stock options

 

109

 

1

 

 

 

 

 

966

 

 

 

 

 

 

 

 

967

 

 

 

 

 

967

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

(1,050

)

 

 

 

 

 

 

 

(1,050

)

 

 

 

 

(1,050

)

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

428

 

 

 

 

 

 

 

 

428

 

 

 

 

 

428

 

 

 

 

Adjustment for noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,830

)

 

(5,830

)

 

 

 

 

(5,830

)

 

5,830

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,416

 

 

12,416

 

 

9

 

 

12,425

 

 

144

 

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

 

 

(53

)

 

 

 

 

(53

)

 

(1

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

417

 

 

 

 

 

417

 

 

7

 

 

424

 

 

4

 

Preferred share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,004

)

 

(3,004

)

 

 

 

 

(3,004

)

 

 

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,689

)

 

(37,689

)

 

 

 

 

(37,689

)

 

(588

)

Balance at June 30, 2014

 

147,078

 

$

 1,471

 

3,100

 

$

 31

 

$

 1,669,327

 

 

$

 (10,650

)

 

$

 (474,944

)

 

$

 1,185,235

 

 

$

 1,495

 

 

$

 1,186,730

 

 

$

 41,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Preferred Shares

 

Additional
Paid in

 

 

Accumulated Other
Comprehensive

 

 

Accumulated

 

 

Total
Shareholders’

 

 

Noncontrolling
Interests in

 

 

Total

 

 

Noncontrolling
Interests in the
Operating

 

 

 

Number

 

Amount

 

Number

 

Amount

 

Capital

 

 

(Loss) Income

 

 

Deficit

 

 

Equity

 

 

Subsidiaries

 

 

Equity

 

 

Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

131,795

 

$

 1,318

 

3,100

 

$

 31

 

$

 1,418,463

 

 

$

 (19,796

)

 

$

 (410,225

)

 

$

 989,791

 

 

$

 118

 

 

$

 989,909

 

 

$

 47,990

 

Issuance of common shares

 

1,225

 

12

 

 

 

 

 

20,374

 

 

 

 

 

 

 

 

20,386

 

 

 

 

 

20,386

 

 

 

 

Issuance of restricted shares

 

215

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

2

 

 

 

 

Conversion from units to shares

 

1,013

 

10

 

 

 

 

 

14,591

 

 

 

 

 

 

 

 

14,601

 

 

 

 

 

14,601

 

 

(14,601

)

Exercise of stock options

 

182

 

2

 

 

 

 

 

1,276

 

 

 

 

 

 

 

 

1,278

 

 

 

 

 

1,278

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

2,131

 

 

 

 

 

 

 

 

2,131

 

 

 

 

 

2,131

 

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

436

 

 

 

 

 

 

 

 

436

 

 

 

 

 

436

 

 

 

 

Adjustment for noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,436

)

 

(3,436

)

 

 

 

 

(3,436

)

 

3,436

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,158

 

 

2,158

 

 

(1

)

 

2,157

 

 

(17

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

8,227

 

 

 

 

 

8,227

 

 

 

 

 

8,227

 

 

144

 

Unrealized loss on foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

(225

)

 

 

 

 

(225

)

 

(2

)

 

(227

)

 

(4

)

Preferred share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,004

)

 

(3,004

)

 

 

 

 

(3,004

)

 

 

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,537

)

 

(29,537

)

 

 

 

 

(29,537

)

 

(502

)

Balance at June 30, 2013

 

134,430

 

$

 1,344

 

3,100

 

$

 31

 

$

 1,457,271

 

 

$

 (11,794

)

 

$

 (444,044

)

 

$

 1,002,808

 

 

$

 115

 

 

$

 1,002,923

 

 

$

 36,446

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

8



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

Net income

 

  $

12,569

 

 

  $

2,140

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

59,686

 

 

60,103

 

Gain from sale of real estate

 

(475

)

 

(228

)

Equity compensation expense

 

(622

)

 

2,567

 

Accretion of fair market value adjustment of debt

 

(800

)

 

(488

)

Equity in losses of real estate venture

 

3,098

 

 

-    

 

Changes in other operating accounts:

 

 

 

 

 

 

Other assets

 

(1,353

)

 

(2,133

)

Restricted cash

 

353

 

 

1,062

 

Accounts payable and accrued expenses

 

(2,190

)

 

1,099

 

Other liabilities

 

1,313

 

 

1,189

 

Net cash provided by operating activities

 

  $

71,579

 

 

  $

65,311

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

Acquisitions of storage facilities

 

  $

(211,722

)

 

  $

(93,743

)

Additions and improvements to storage facilities

 

(8,481

)

 

(9,399

)

Development costs

 

(12,693

)

 

(17,557

)

Cash contributed to real estate venture

 

(1,750

)

 

-    

 

Cash distributed from real estate venture

 

53,949

 

 

-    

 

Proceeds from sale of real estate, net

 

13,475

 

 

10,993

 

Proceeds from notes receivable

 

-    

 

 

5,192

 

Change in restricted cash

 

304

 

 

468

 

Net cash used in investing activities

 

  $

(166,918

)

 

  $

(104,046

)

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

Proceeds from:

 

 

 

 

 

 

Revolving credit facility

 

  $

447,200

 

 

  $

229,200

 

Principal payments on:

 

 

 

 

 

 

Revolving credit facility

 

(428,900

)

 

(164,200

)

Mortgage loans and notes payable

 

(2,653

)

 

(13,352

)

Loan procurement costs

 

(57

)

 

(2,141

)

Proceeds from issuance of common shares

 

126,123

 

 

20,388

 

Exercise of stock options

 

967

 

 

1,278

 

Contributions from noncontrolling interests in subsidiaries

 

548

 

 

-    

 

Distributions paid to common shareholders

 

(36,682

)

 

(29,258

)

Distributions paid to preferred shareholders

 

(3,004

)

 

(3,004

)

Distributions paid to noncontrolling interests in Operating Partnership

 

(590

)

 

(650

)

Net cash provided by financing activities

 

  $

102,952

 

 

  $

38,261

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

7,613

 

 

(474

)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

3,176

 

 

4,495

 

Cash and cash equivalents at end of period

 

  $

10,789

 

 

  $

4,021

 

 

 

 

 

 

 

 

Supplemental Cash Flow and Noncash Information

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

  $

25,204

 

 

  $

22,522

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

Accretion of liability

 

  $

3,571

 

 

  $

-    

 

Derivative valuation adjustment

 

  $

(54

)

 

  $

8,371

 

Foreign currency translation adjustment

 

  $

428

 

 

  $

(231

)

Mortgage loan assumption - acquisition of storage facilities

 

  $

27,467

 

 

  $

-    

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

9



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Storage facilities

 

  $

2,776,835

 

 

  $

2,553,706

 

Less: Accumulated depreciation

 

(442,044

)

 

(398,536

)

Storage facilities, net (including VIE asssets of $34,314 and $34,559, respectively)

 

2,334,791

 

 

2,155,170

 

Cash and cash equivalents

 

10,789

 

 

3,176

 

Restricted cash

 

3,587

 

 

4,025

 

Loan procurement costs, net of amortization

 

11,543

 

 

12,687

 

Investment in real estate venture, at equity

 

101,013

 

 

156,310

 

Other assets, net

 

41,400

 

 

27,256

 

Total assets

 

  $

2,503,123

 

 

  $

2,358,624

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

Unsecured senior notes

 

  $

500,000

 

 

  $

500,000

 

Revolving credit facility

 

56,900

 

 

38,600

 

Unsecured term loan

 

400,000

 

 

400,000

 

Mortgage loans and notes payable

 

224,232

 

 

200,218

 

Accounts payable, accrued expenses and other liabilities

 

57,847

 

 

57,599

 

Distributions payable

 

20,960

 

 

19,955

 

Deferred revenue

 

14,632

 

 

12,394

 

Security deposits

 

392

 

 

376

 

Total liabilities

 

1,274,963

 

 

1,229,142

 

 

 

 

 

 

 

 

Operating Partnership interests of third parties

 

41,430

 

 

36,275

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

Operating Partner

 

1,195,885

 

 

1,103,290

 

Accumulated other comprehensive loss

 

(10,650

)

 

(11,014

)

Total CubeSmart, L.P. capital

 

1,185,235

 

 

1,092,276

 

Noncontrolling interests in subsidiaries

 

1,495

 

 

931

 

Total capital

 

1,186,730

 

 

1,093,207

 

Total liabilities and capital

 

  $

2,503,123

 

 

  $

2,358,624

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

10



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per common unit data)

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

  $

81,071

 

 

  $

68,739

 

 

  $

156,785

 

 

  $

134,991

 

Other property related income

 

9,799

 

 

8,333

 

 

19,946

 

 

15,592

 

Property management fee income

 

1,467

 

 

1,217

 

 

2,873

 

 

2,362

 

Total revenues

 

92,337

 

 

78,289

 

 

179,604

 

 

152,945

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

32,080

 

 

28,469

 

 

64,370

 

 

57,629

 

Depreciation and amortization

 

30,487

 

 

28,393

 

 

58,602

 

 

57,376

 

General and administrative

 

7,059

 

 

7,515

 

 

13,628

 

 

15,128

 

Total operating expenses

 

69,626

 

 

64,377

 

 

136,600

 

 

130,133

 

OPERATING INCOME

 

22,711

 

 

13,912

 

 

43,004

 

 

22,812

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

(12,027

)

 

(10,588

)

 

(23,898

)

 

(20,860

)

Loan procurement amortization expense

 

(543

)

 

(497

)

 

(1,084

)

 

(973

)

Acquisition related costs

 

(721

)

 

(1,648

)

 

(2,400

)

 

(1,763

)

Equity in losses of real estate venture

 

(1,729

)

 

-    

 

 

(3,098

)

 

-    

 

Gain from sale of real estate

 

475

 

 

-    

 

 

475

 

 

-    

 

Other

 

(173

)

 

(187

)

 

(766

)

 

(260

)

Total other expense

 

(14,718

)

 

(12,920

)

 

(30,771

)

 

(23,856

)

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM CONTINUING OPERATIONS

 

7,993

 

 

992

 

 

12,233

 

 

(1,044

)

 

 

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

-    

 

 

1,576

 

 

336

 

 

2,956

 

Gain from disposition of discontinued operations

 

-    

 

 

-    

 

 

-    

 

 

228

 

Total discontinued operations

 

-    

 

 

1,576

 

 

336

 

 

3,184

 

NET INCOME

 

7,993

 

 

2,568

 

 

12,569

 

 

2,140

 

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in subsidiaries

 

(12

)

 

-    

 

 

(9

)

 

1

 

NET INCOME ATTRIBUTABLE TO CUBESMART L.P.

 

7,981

 

 

2,568

 

 

12,560

 

 

2,141

 

Operating Partnership interests of third parties

 

(95

)

 

(18

)

 

(144

)

 

17

 

NET INCOME ATTRIBUTABLE TO OPERATING PARTNER

 

7,886

 

 

2,550

 

 

12,416

 

 

2,158

 

Distribution to preferred unitholders

 

(1,502

)

 

(1,502

)

 

(3,004

)

 

(3,004

)

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS

 

  $

6,384

 

 

  $

1,048

 

 

  $

9,412

 

 

  $

(846

)

Basic earnings (loss) per share from continuing operations attributable to common unitholders

 

  $

0.04

 

 

  $

0.00

 

 

  $

0.06

 

 

  $

(0.03

)

Basic earnings per share from discontinued operations attributable to common unitholders

 

  $

0.00

 

 

  $

0.01

 

 

  $

0.01

 

 

  $

0.02

 

Basic earnings (loss) per share attributable to common unitholders

 

  $

0.04

 

 

  $

0.01

 

 

  $

0.07

 

 

  $

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share from continuing operations attributable to common unitholders

 

  $

0.04

 

 

  $

0.00

 

 

  $

0.06

 

 

  $

(0.03

)

Diluted earnings per share from discontinued operations attributable to common unitholders

 

  $

0.00

 

 

  $

0.01

 

 

  $

0.01

 

 

  $

0.02

 

Diluted earnings (loss) per share attributable to common unitholders

 

  $

0.04

 

 

  $

0.01

 

 

  $

0.07

 

 

  $

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic units outstanding

 

144,679

 

 

133,677

 

 

142,461

 

 

133,316

 

Weighted-average diluted units outstanding

 

146,999

 

 

133,677

 

 

144,691

 

 

133,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

  $

6,384

 

 

  $

(501

)

 

  $

9,081

 

 

  $

(3,976

)

Total discontinued operations

 

-    

 

 

1,549

 

 

331

 

 

3,130

 

Net income (loss)

 

  $

6,384

 

 

  $

1,048

 

 

  $

9,412

 

 

  $

(846

)

 

See accompanying notes to the unaudited consolidated financial statements.

 

11



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

  $

7,993

 

 

  $

2,568

 

 

  $

12,569

 

 

  $

2,140

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on interest rate swap

 

(2,247

)

 

5,595

 

 

(3,231

)

 

5,286

 

Reclassification of realized losses on interest rate swaps

 

1,601

 

 

1,554

 

 

3,177

 

 

3,085

 

Unrealized gain (loss) on foreign currency translation

 

354

 

 

25

 

 

428

 

 

(231

)

OTHER COMPREHENSIVE (LOSS) INCOME

 

(292

)

 

7,174

 

 

374

 

 

8,140

 

COMPREHENSIVE INCOME

 

7,701

 

 

9,742

 

 

12,943

 

 

10,280

 

Comprehensive income attributable to Operating Partnership interests of third parties

 

(88

)

 

(140

)

 

(147

)

 

(123

)

Comprehensive (income) loss attributable to noncontrolling interests in subsidiaries

 

(17

)

 

(7

)

 

(16

)

 

3

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO OPERATING PARTNER

 

  $

7,596

 

 

  $

9,595

 

 

  $

12,780

 

 

  $

10,160

 

 

See accompanying notes to the unaudi